A new outlook challenges crash predictions
The current housing market correction at play across the US will likely result in price moderation rather than the dramatic crash some observers fear, a new First American analysis has said, despite affordability improvements and slowing price growth across the nation.
According to Odeta Kushi, First American’s deputy chief economist, housing affordability has improved for six consecutive months, with national data showing a 4.4% annual improvement in May. The gains stem from falling mortgage rates, slower house price growth, and rising household incomes.
Preliminary data from June and July indicates affordability reached levels last seen in October 2024, marking a 10% increase from the October 2023 low point.
“Although affordability remains historically low, the modest rebound is encouraging for potential buyers,” Kushi noted.
Nominal house price growth has slowed to single digits, with prices declining or showing growth under 1% in nearly half of the 50 markets monitored. San Francisco experienced the steepest annual decline at nearly 7%. Real house prices decreased 4.4% year-over-year in May 2025, while increasing 0.6% month-over-month.
Regional variations are significant. South Dakota led gains with a 7.3% year-over-year increase, while Florida saw the largest decline at 11.2%.
Kushi argues this housing cycle differs fundamentally from the pre-2008 bubble. The current market features stronger borrower profiles, conservative loan structures, and substantial homeowner equity buffers.
“The housing sector has been underbuilt for over a decade, leading to a structural housing shortage,” said Kushi. She noted that, since 2009, annual household growth has consistently exceeded new housing units added, creating a supply-demand imbalance.
Current homeowners maintain substantial equity cushions, with the national loan-to-value ratio at just 28%—well below the approximately 50% level seen in 2008. The median credit score for approved borrowers reached 772 in the first quarter of 2025.
“In today’s environment of elevated mortgage rates and economic uncertainty, buyers are pulling back and sellers are adjusting their price expectations, so house prices naturally are softening,” said Kushi. However, the structural supply shortage relative to demand will likely prevent sharp price declines.
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